Is Your In-flight Meal Tax Deductible?

If you fly to a business meeting in the corporate jet, the company can deduct the cost of your catered tuna sandwich on the airplane, right? After all, it’s a business trip, isn’t it?

It is, but the rules for tax deductibility of meal expenses—beginning with the definition of “meal” itself—can be difficult to digest. A sumptuous feast is not required; the Internal Revenue Code employs what might be called the “swallow test,” which considers any food or beverage a “meal.” That includes just about anything you might swallow short of drugs or your pride, ranging from a bottle of water at the airport or a soda from a minibar to a catered lunch on the jet, room-service breakfast at the hotel, or a steak dinner at Morton’s.

Your waistline may not be shrinking, but the deductibility of food and beverages has been of late. Years ago, companies could basically deduct the full cost of ordinary and necessary (i.e., customary and appropriate) business-related meals. Over time, the deductible portion was whittled down in many cases to 50 percent. Congress’s rationale was that taking a client out to dinner ineluctably involves an element of personal consumption and enjoyment; unless you hated the client and the restaurant, the meal should be filling and fun for you.

Then in 2017, the so-called Tax Cuts and Jobs Act (TCJA) generally disallowed deductions for entertainment-related expenses (including meals that themselves constitute entertainment), even when directly related to or associated with the business. Meals that are not entertainment-related, such as a room-service dinner while you’re on a business trip, still qualify for a 50 percent deduction.

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Understating the value of personal usage of the company aircraft can lead to significant penalties.

Obviously, to the extent that jet passengers reimburse you for the cost of meals, assuming you don’t treat the reimbursement as income, you don’t actually incur an expense and therefore have nothing to deduct for tax purposes. Payments related to air transportation are generally subject to FAA regulation, but the agency suffers little heartburn over meal reimbursements.

For charter flights under Part 135 of the FAA regulations, the aircraft operator can invoice the passenger whatever the market will bear. Under Part 91, passenger reimbursements for separately stated meal expenses shouldn’t generally be an issue as long as they aren’t a disguised attempt to charge for transportation. You can’t, for example, charge your passenger $10,000 for a Diet Coke. In addition, Part 91.501 specifically permits the aircraft owner to charge demo and time-share passengers for “in-flight food and beverages.” The same is true of meals for crew members, which would count as crew travel expenses; no one wants to travel on a jet flown by starving pilots.

But let’s say there’s no reimbursement for meals served on a flight. Is the cost of those meals deductible? The answer is complicated, especially regarding business jets, which tax authorities often perceive to be rather like vacation homes in the sky. The culprit is “entertainment”; both personal and business flights involving entertainment are the most challenging when it comes to justifying expense deductions.

The semi-tautological and curiously uninformative IRS definition of “entertainment”—“an activity of a type generally considered to constitute entertainment, amusement, or recreation”—doesn’t offer a model of clarity. But to identify “entertainment,” you should consider the purpose of the flight, who the passengers are, and whether and when anyone was supposed to be having fun.

In the wake of the 2017 TCJA, given the difficulty in determining when a meal itself might be considered entertainment (as opposed to just a meal), the IRS published Notice 2018-76 offering “transitional guidance” to help taxpayers figure out which entertainment meal expenses could still be deducted. Based on the definition of “entertainment,” which remains unchanged, and the legislative history of the TCJA, the Notice provides a safe harbor permitting a 50 percent deduction for the cost of an “otherwise allowable” meal if it is an ordinary and necessary business expense.

In addition, the meal can’t be lavish or extravagant “under the circumstances” (for example, a $100 bottle of wine might be OK for a meal at Le Bernardin but not at Pizza Hut); the taxpayer, or an employee of the taxpayer, must be present while the meal is consumed; and the meal must be “provided to a current or potential business customer, client, consultant, or similar business contact.” Further, if meals are provided “during or at an entertainment activity,” the 50 percent deduction can still apply if the meals are purchased separately from the entertainment or listed separately on invoices and receipts.

In sum, there are three food buckets to consider: meals that are fully deductible under a few specific exceptions, meals that are 50 percent deductible, and meals that aren’t deductible at all. In some cases, you may need a fourth bucket for meal expenses that are deductible, but only before 2026.

To determine which bucket to put the food into for a given flight, the first step is to determine whether entertainment is involved, whether any such entertainment is business-related, and whether the safe harbor in the IRS Notice applies. In the case of a bona fide business trip, all of the ordinary and necessary expenses should be 100 percent deductible except the meals, including the catered tuna sandwich we started with. Assuming a business trip involves no entertainment and lunch isn’t lavish or extravagant, only 50 percent of the cost of meals is deductible, including in-flight catering for passengers and flight crew.

On the other hand, if the CEO takes the company jet for a family vacation to the Caribbean, the trip constitutes personal entertainment, the cost of which should be included in the executive’s income, and no expenses (including meals) will be deductible by the company except to the extent that the CEO has been taxed on the same amount.

But suppose for business purposes you fly your customer to New York on the company jet solely to attend a Yankees game, something also ordinarily thought to be a “business entertainment activity.” Is 50 percent of the cost of in-flight meals deductible? After all, they are stated separately on a catering invoice and are not part of the cost of the baseball tickets.

One would think the answer is “yes,” since the Notice is clear that you can deduct half the cost of meals, without the challenge that the meal is entertainment, when customers or clients are present and the other requirements of the Notice safe harbor are met. But as Ruth Wimer, an aircraft personal-use expert at Winston & Strawn points out, we don’t know whether the Notice applies to business entertainment flights or whether the long-standing regulations regarding personal entertainment flights would also be applicable to such flights. Those regulations disallow the entire cost, not just 50 percent, of business entertainment flights.

Moreover, the few exceptions that would allow a 100 percent deduction (such as meals at a recreational activity not limited to highly compensated employees) may still be applicable. Unless one of the exceptions clearly applies, Wimer suggests, the smart move is to treat all business entertainment flight expenses as falling under the specific deduction rules for personal entertainment and not deduct them.

In case you’re wondering whether IRS revenue agents really have an appetite for fussing over tax deductions for meals, in 2017 the IRS fought the owners of the Boston Bruins in the U.S. Tax Court over deductions taken for meals on the road for the players and team personnel. The agency lost the case but won in the long run because the TCJA changed the law to prevent the continued deduction.

Confused? You’ll be glad to learn that the IRS Notice is intended only as “interim guidance.” The agency intends to produce regulations that will clarify the deduction of meal expenses. I wish them the best of luck.